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JPAbusiness Due Diligence Checklist
This document provides a due diligence checklist for clients considering purchasing a business. It includes questions to consider regarding customers and markets, inventory and suppliers, people and processes, contracts and agreements, and financial performance of the business. It also includes a simplified legal due diligence checklist of key information to obtain from vendors, such as corporate structure, licenses, contracts, assets, employees and any litigation. The purpose is to help buyers thoroughly evaluate all important aspects of a target business before acquiring it.
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JPAbusiness Due Diligence Checklist
- 1. © 2015 JPAbusiness Pty Ltd This work is licensed under the Creative Commons Attribution 4.0 International License. ABN 62 150 534 099 To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. JPAbusiness Due Diligence Checklist s business advisors, the JPAbusiness team provides financial and commercial due diligence for clients considering business purchases and we often coordinate the legal due diligence with our clients’ solicitors. On the following pages you will find questions to consider when conducting your own financial and commercial due diligence, or when discussing the process with your advisors. Legal due diligence can be a very detailed undertaking, so for the sake of brevity we have included a much-simplified legal due diligence checklist on the final page. This checklist contains some of the basic information to seek from vendors when conducting legal due diligence. This information has been kindly supplied by specialist commercial lawyers Watson Mangioni who conduct detailed legal due diligence for a wide range of clients. A Due diligence questions to consider Info received Notes Customers and Markets Is there a diversity of sales by major product line over the past two years? ¨ What was the $/% margin earned on each main product and service over the past two years? ¨ At completion, what is the shape of the work pipeline (quotes, orders, work in progress) – is it similar to business as usual? ¨ Where does the business receive sales inquiries from and how does it market its propositions? ¨ What do key recent customers think about the business' product and service offering? ¨ What are the key trends, business issues, competitive dynamics and regulatory changes impacting the sector and geography that the business operates in? ¨
- 2. © 2015 JPAbusiness Pty Ltd This work is licensed under the Creative Commons Attribution 4.0 International License. ABN 62 150 534 099 To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. Due diligence questions to consider Info received Notes Inventory and Suppliers How closely do inventory levels for major products match historic and expected sales levels for an industry relevant timeframe (sales cycle)? ¨ What are the specific payment and supply terms (by written agreement or verbal) for each main supplier to the business? ¨ What do the business' key suppliers think about the business and its performance, strengths and weaknesses? ¨ What portion of the business' inventory could be classified as slow moving or obsolete? ¨ Do you have enough decision support and information to conduct a stocktake at completion? ¨ People and Process What is the current organisational structure, and specific roles and responsibilities of the main roles driving the business? ¨ Have you sighted a complete payroll schedule, with remuneration and entitlements per employee (see Legal checklist below)? ¨ Are there any risks and issues with the transfer of employees, including entitlements, claims and other liabilities? ¨ Have you reviewed all employment documentation (contracts, verbals, promises, other) and considered the implications for transfer? ¨ What are the key processes and procedures that drive business performance (e.g. the job/project management process (from order through to deliver and billing) and do you understand each step (system, manual, other)? ¨
- 3. © 2015 JPAbusiness Pty Ltd This work is licensed under the Creative Commons Attribution 4.0 International License. ABN 62 150 534 099 To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. Due diligence questions to consider Info received Notes Contracts, Licences, Registrations and Agreements Have you reviewed and considered all key agreements (documented and verbal) that require an obligation from the business? ¨ Have you confirmed the legal and practical status of business name and any trademarks, logos, and other valuable information such as IP, designs, drawings, logins, subscriptions, prepaid advertising etc? ¨ Have you identified and confirmed any assignment or transfers requirements for any items or agreements critical to the business operations that need to occur upon completion? ¨ Business and Financial Performance Have you cross-checked and undertaken an analysis to substantiate any adjustments to the financial accounts to confirm Business Maintainable Earnings (BME)? ¨ Have you conducted a reconciliation of management accounts to the accountant’s financial accounts for the latest two years to confirm any differences? ¨ Have you identified any material variances in the financial performance over the past 2-3 years, why these occurred and the implications? ¨ What are the risks associated with the business' current debtor and creditor profile (e.g. arrears and poor payment, working capital impacts, etc)? ¨ Have you reviewed and assessed the monthly cash flow profile of the business to identify tight periods that impact working capital and why? ¨ Have you conducted a tax and BAS/GST liability reconciliation to confirm status and any variances of a material nature? ¨ Does the business adequately measure up (positively) against your acquisition, financial and other objectives? If not, does the current offer/acceptance have appropriate risk mitigation strategies, or do you need to reconsider your offer and/or contract provisions? ¨
- 4. © 2015 JPAbusiness Pty Ltd This work is licensed under the Creative Commons Attribution 4.0 International License. ABN 62 150 534 099 To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. Legal due diligence checklist Information to seek from vendors Received Notes A group structure diagram (including any wholly or partly owned subsidiaries and any other companies or entities which are integral to the business, with shareholding details where applicable). ¨ A list of all governmental, statutory or other permits, authorities or licences held by each group entity required by them to conduct their business. ¨ For each group entity, full details of: • all material assets owned by the entity, details of any purchase price outstanding, and the value, condition and location of the assets ¨ • any encumbrances over the material assets ¨ • all material contracts entered into by the entity ¨ • the intellectual property rights, business names, domain names and software owned by the entity ¨ • all freehold properties owned by the entity, and any properties leased or rented by the entity. ¨ Copies of documents relating to guarantees or security given by any member of the group in respect of the debts of any other company or person. ¨ A list of all financing arrangements entered into by the group companies. ¨ Details of each employee of the group companies (including name, position, location, start date, accrued leave entitlements, salary, superannuation and other benefits paid to the employee). ¨ Full details of any current, pending or threatened litigation against any group entity. ¨
- 5. © 2015 JPAbusiness Pty Ltd This work is licensed under the Creative Commons Attribution 4.0 International License. ABN 62 150 534 099 To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. If you would like to learn more about the business advisory and broking services offered by JPAbusiness, please contact the team by visiting www.jpabusiness.com.au/contact-jpabusiness For information about the wide range of commercial law services provided by Watson Mangioni Lawyers, go to http://www.wmlaw.com.au Please feel free to post this template on your blog, or email, tweet and share it with your network. JPAbusiness Due Diligence Checklist Disclaimer This Due Diligence Checklist is a general guide to matters to consider when acquiring a business or shares in a company. You ought to seek professional advice before taking action or relying on any topic in this checklist. The material in this checklist is not advice and should be regarded as a general guide only.